Air­lines on a Binge

The Mid­dle East re­gion, which has reg­is­tered an air traf­fic growth of 11% in 2013, con­tin­ues to out­pace the rest of the world and Qatar To­day speaks to two ma­jor plane mak­ers – Air­bus and Boe­ing – about their plans to meet the grow­ing de­mand for new plane

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Notwith­stand­ing de­clin­ing oil prices, which may im­pact the eco­nomic growth of their coun­tries, air­lines in the GCC re­gion are scout­ing for new des­ti­na­tions and also adding more to the ex­ist­ing routes in the process. And to keep pace they have been on a buy­ing spree of new air­craft to re­place the old ones in their fleet. The eco­nomic growth rates in emerg­ing mar­kets such as Asia, Latin Amer­ica, Africa and the Mid­dle East are out­strip­ping more eco­nom­i­cally de­vel­oped re­gions. One sig­nif­i­cant ef­fect is that the mid­dle class in Asia is ex­pected to quadru­ple in size by 2033 whereas glob­ally they will dou­ble from 33% to 63% of the world's pop­u­la­tion.

As a re­sult of in­creased ur­ban­i­sa­tion and con­cen­tra­tion of wealth, the num­ber of avi­a­tion megac­i­ties world­wide is ex­pected to dou­ble to 91. Th­ese cities will be the cen­tres of world wealth cre­ation with 35% of world GDP cen­tred there, and with more than 95% of all long-haul traf­fic go­ing to, from or through them.

Deals at Dubai Air­show

Ac­cord­ing to re­ports, on the open­ing day of the Dubai Air­show on Novem­ber 4 last year, GCC air­lines en­tered into deals worth QR364 bil­lion ($100 bil­lion) in just 15 min­utes by order­ing hun­dreds of new pas­sen­ger jets.

In one mega-deal, Emi­rates and Qatar Air­ways or­dered 200 new Boe­ing's newly re-launched 777-9X jets while Emi­rates en­tered into a deal with the Euro­pean air­craft man­u­fac­turer Air­bus to buy the world's largest jet­liner, the A380 su­per-jumbo, ac­cord­ing to the re­ports.

This brought the back­log of 777-9X planes to 225 in the re­gion ,in­clud­ing 25 or­dered by Eti­had. In all, six air­lines from Europe, Asia and the Mid­dle East placed or­ders for 286 777-9X planes. The pro­duc­tion of the 777-9X is set to begin in 2017, with the first de­liv­ery in 2020.

For Emi­rates, De­cem­ber 19 was a red let­ter day in its his­tory as it flew more than 80,000 pas­sen­gers on over 240 flights in a sin­gle day. This was up al­most 23% over last year, ac­cord­ing to the air­line's book­ing fig­ures, and the top des­ti­na­tions out of Dubai in­clude Lon­don, Bangkok, Mumbai, Sin­ga­pore, Paris and Karachi.

Mid­dle East is the avi­a­tion hub

“The Mid­dle East has be­come a ma­jor cen­tre for air trans­port, one of grow­ing global im­por­tance with its cen­tral po­si­tion ge­o­graph­i­cally, strong eco­nomic growth and the world's big­gest emerg­ing economies and cen­tres of pop­u­la­tion within a flight away, Mid­dle Eastern car­ri­ers stand to reap the benefits of traf­fic growth,” says Fouad At­tar, Man­ag­ing Direc­tor of Air­bus Mid­dle East.

As per the In­ter­na­tional Air Traf­fic As­so­ci­a­tion (IATA) pas­sen­ger fore­cast 2014, the Mid­dle East is ex­pected to grow strongly (4.9%) and will see an ex­tra 237 mil­lion pas­sen­gers a year on routes to, from and within the re­gion by 2034. “The UAE, Qatar and Saudi Ara­bia will all en­joy strong growth of 5.6%, 4.8%, and 4.6%, re­spec­tively. The to­tal mar­ket size will be 383 mil­lion pas­sen­gers,” he says.

Quot­ing Air­bus' Global Mar­ket Fore­cast for the next 20 years (2014-2033), At­tar says pas­sen­ger traf­fic will grow an­nu­ally at 4.7%, driv­ing a need for more than 31,350 new pas­sen­ger and freighter air­craft worth QR16.74 tril­lion ($4.6 tril­lion) at cur­rent list prices.

Air­bus' Global Mar­ket Fore­cast pre­dicts a 7.1% yearly pas­sen­ger growth rate for the ME over the next 20 years, com­pared to a global av­er­age of 4.7%. The share of pas­sen­ger air­craft in the world op­er­ated by Mid­dle Eastern car­ri­ers has dou­bled in ten years; by 2032 the Mid­dle East re­gion will need more than 2,148 new air­craft.

“The pas­sen­ger and freighter fleet will in­crease from to­day's 18,500 air­craft to 37,500 by 2033, an in­crease of nearly 19,000 air-

craft. Some 12,400 older, less-fuel ef­fi­cient pas­sen­ger and freighter air­craft will be re­tired in the next 20 years,” At­tar says.

Air­bus' arch ri­val Boe­ing too is aware that the Mid­dle East is a key mar­ket for the com­pany and has been con­cen­trat­ing on the re­gion to have a size­able piece of the pie. It is far ahead of its com­peti­tors in sup­ply­ing new air­planes to the re­gional air­lines.

“We are ready to meet the de­mand for new planes for the air­lines in the re­gion,” says Marty Ben­trott, Vice Pres­i­dent (Sales) for Mid­dle East, Rus­sia and Cen­tral Asia for Boe­ing. Boe­ing es­ti­mates that the re­gion's air­lines will re­quire as many as 2,950 new air­planes worth around QR2.3 tril­lion ($640 bil­lion) by 2033 and al­ready the op­er­a­tors have been rais­ing fi­nances to re­place the old air­crafts with new ones. The com­pany also fore­casts a de­mand for 36,770 new air­planes val­ued at QR18.92 tril­lion ($5.2 tril­lion) glob­ally over the next 20 years, an in­crease of 4.2% from last year's fore­cast.

“The re­gion's air traf­fic growth is led by Qatar Air­ways, Emi­rates, Eti­had, Saudia and the re­gion's low-cost car­ri­ers (LCCs). We are geared to meet the de­mand and the re­gion has one of the world's fastest-grow­ing com­mer­cial avi­a­tion sec­tors and con­tin­ues to be a key mar­ket for us,” Ben­trott says.

He says that LCCs have driven the growth of air traf­fic around the world due to their suc­cess­ful busi­ness model, which has grown tremen­dously over the past two decades, fo­cus­ing on busi­ness and op­er­a­tional prac­tices that drive down air­line costs. The prac­tices in­clude op­er­at­ing at sec­ondary air­ports, fly­ing a sin­gle air­plane type, in­creas­ing air­plane utilisation, re­ly­ing on di­rect sales, of­fer­ing a sin­gle class prod­uct, avoid­ing fre­quent flyer pro­grams and keep­ing labour costs low.

“Th­ese tac­tics help LCCs re­duce unit costs by 20-40% com­pared with net­work car­ri­ers, al­low­ing them to re­duce fares, which stim­u­lates traf­fic sig­nif­i­cantly. The trend to­wards growth of the low-cost model is clear. LCCs have grown from 7% of the world mar­ket in 2003 to 16% to­day, and are pro­jected to cap­ture 21% by 2033,” Ben­trott says.

The de­mand for wide-body air­craft is ex­pected to grow as the air­lines ex­pand their in­ter­na­tional foot­print and open new mar­kets. “Boe­ing fore­casts that 8,600 new air­planes will be needed to meet this de­mand. Around 38% of de­liv­er­ies will be for re­place­ments and 62% will be for growth, nearly 60% of all new de­liv­er­ies will go to Mid­dle Eastern and Asia Pa­cific air­lines. With the most com­pre­hen­sive wide-body lineup in the in­dus­try, in­clud­ing the new 787-10 and 777X, we are con­fi­dent that we will meet our cus­tomers' needs now and in the fu­ture,” Ben­trott says.

De­liv­ery de­lays

What has be­come a hin­drance for some of the air­lines is the de­lay in de­liv­ery of the

“The re­gion’s air traf­fic growth is led by Qatar Air­ways, Emi­rates, Eti­had, Saudia and the re­gion’s low-cost car­ri­ers. We are geared to meet the de­mand and the re­gion has one of the world’s fastest­grow­ing com­mer­cial avi­a­tion sec­tors and con­tin­ues to be a key mar­ket for us.” Marty Ben­trott Vice Pres­i­dent (Sales) for Mid­dle East, Rus­sia and Cen­tral Asia

new planes by the man­u­fac­tur­ers.

Qatar Air­ways Group CEO Ak­bar Al Baker openly said that the de­lay in sup­ply­ing the A380 by three months has re­sulted in a loss of QR728 mil­lion ($200 mil­lion) to the air­lines. How­ever, At­tar de­clines to com­ment on the re­marks.

“We can only re­it­er­ate that the A380 is the 21st cen­tury so­lu­tion for sus­tain­able growth, pro­vid­ing vi­tal ex­tra pas­sen­ger ca­pac­ity at con­gested air­ports, with­out in­creas­ing the num­ber of flights. The A380 has the low­est seat mile costs in its class,” At­tar says and adds that Air­bus adapts and ad­justs its pro­duc­tion rates ac­cord­ing to de­mand and is con­tin­u­ously in close co­op­er­a­tion with its sup­ply chain part­ners to en­sure a smooth pro­duc­tion flow.

Even the first A350-900, the first car­bon fi­bre air­craft from Air­bus, which was to be handed over to Qatar Air­ways at Toulouse in France on De­cem­ber 13, was fi­nally handed over on De­cem­ber 22.” Qatar Air­ways has placed or­ders for 80 A350-900 planes.

How­ever, the nine-day de­lay will not af­fect the sched­ule of plane's com­mer- cial launch to Frank­furt on Jan­uary 15. The A350-900 is ex­pected to ri­val the 787 Dream­liner and Boe­ing 777 in terms of fuel ef­fi­ciency and op­er­a­tional costs.

Dream­liner 787 is­sues

The Dream­liner's devel­op­ment and world­wide launch were among the most dif­fi­cult ex­pe­ri­enced by a com­mer­cial air­liner. It was orig­i­nally due to en­ter ser­vice in 2008 but re­peated set­backs de­layed its first com­mer­cial flight un­til 2011 and sent its cost spi­ral­ing to an es­ti­mated $32bil­lion.

And the en­tire global fleet was briefly grounded in 2013 af­ter two fires caused by its pow­er­ful lithium-ion bat­ter­ies.

But even with the Dream­liner 787 reel­ing un­der tech­ni­cal is­sues, ma­jor air­lines are still plac­ing or­ders for the air­craft.

Ben­trott says the re­li­a­bil­ity of the 787 has been a top pri­or­ity for Boe­ing. The 787 fleet has flown nearly 335,000,000 rev­enue miles since en­try into ser­vice.

Nearly 30 mil­lion pas­sen­gers have flown on the Dream­liner and sur­veys con­tinue to show that it is pro­vid­ing a pre­ferred ex­pe­ri­ence for trav­ellers.

“While we are not yet sat­is­fied with our fleet-wide per­for­mance, even though it is above 98% on av­er­age, we have made progress im­ple­ment­ing a se­ries of com­po­nent, soft­ware and spare parts place­ment im­prove­ments. We will not be sat­is­fied un­til we are meet­ing our cus­tomers' ex­pec­ta­tions across the board,” he says.

Boe­ing's cus­tomers, Ben­trott says, are con­fi­dent in the 787's ad­vanced ca­pa­bil­i­ties and have placed or­ders for a to­tal of 156 planes to date. Of th­ese, 17 have been de­liv­ered to Qatar Air­ways and one has to Royal Jor­da­nian. “Be­sides th­ese air­lines, other 787 cus­tomers in the re­gion in­clude Saudi Ara­bian Air­lines, Oman Air, Gulf Air and Iraqi Air­ways,” Ben­trott adds.

“The pas­sen­ger and freighter fleet will in­crease from to­day’s 18,500 air­craft to 37,500 by 2033, an in­crease of nearly 19,000 air­craft. Some 12,400 older, less­fuel ef­fi­cient pas­sen­ger and freighter air­craft will be re­tired in the next 20 years.”

Fouad At­tar Man­ag­ing Direc­tor Air­bus Mid­dle East

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